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Stamp Duty on Shared Ownership Property
When you buy a home through a shared ownership scheme, you have two ways to pay Stamp Duty Land Tax (SDLT): either make a one-off payment based on the property's full market value, or pay SDLT in stages as you increase your ownership share. Your choice can significantly affect...
Introduction
When you buy a home through a shared ownership scheme, you have two ways to pay Stamp Duty Land Tax (SDLT): either make a one-off payment based on the property's full market value, or pay SDLT in stages as you increase your ownership share. Your choice can significantly affect how much tax you pay and when, so it's important to understand both options before you complete your purchase.
What is shared ownership?
Shared ownership schemes help people buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share. You can increase your ownership over time by buying additional shares – a process known as 'staircasing'. The scheme must be operated by an approved qualifying body for the special SDLT rules to apply.
Approved qualifying bodies
The SDLT options described in this article only apply if your shared ownership lease is granted by one of these approved bodies:
- Local housing authority
- Housing association
- Housing action trust
- Northern Ireland Housing Executive
- Commission for the New Towns
- Development corporations
If you're buying from a different type of organisation, these rules won't apply.
Your two SDLT options
You can choose between two approaches when working out your SDLT liability:
1. Market value election – pay SDLT upfront on the property's full market value
2. Staged payments – pay SDLT only on what you buy initially, then on future purchases if your share exceeds 80%
Each option suits different circumstances, and you should consider which works best for your situation.
Market value election
With a market value election, you pay SDLT as if you'd bought the entire property outright from the start. You calculate the tax based on the property's total market value (stated in your lease), not just the share you're buying.
The key benefit: Once you've paid the initial SDLT, you won't pay any more – even if you staircase to 100% ownership later.
When it works well: This option often makes sense when the property's total market value is below or just above the SDLT threshold of £125,000 for residential property.
Properties with freehold rights
If your lease gives you the right to acquire the freehold (common with houses), HMRC charges SDLT on the market value of the freehold at the time of the first sale.
Example: The market value of the freehold is £140,000 and you buy a 50% share for £70,000. You pay SDLT on the full £140,000: 0% on the first £125,000 and 2% on the remaining £15,000, totalling £300.
Properties without freehold rights
If your lease doesn't give you the right to the freehold (typically flats), HMRC charges SDLT on the 'open market premium' – the amount you'd pay for the largest share you can own under your lease terms. If there's a high annual rent, the net present value of that rent also counts towards your SDLT calculation.
Making the election
You must make a market value election when you submit your SDLT return, or you can amend your return to add the election up to 12 months after the filing deadline.
Important: You cannot cancel a market value election once made.
When you later buy additional shares or acquire the freehold outright, you must submit an SDLT return to inform HMRC, but you won't pay any additional SDLT.
Paying SDLT in stages
If you don't make a market value election, you pay SDLT in stages based on what you actually spend at each transaction.
Your first purchase
You pay SDLT only on the premium (purchase price) you paid for your initial share.
Example: The market value of a property is £140,000 and you buy a 50% share for £70,000. There's no SDLT to pay because £70,000 is below the £125,000 threshold. You must still submit a return to HMRC.
If the market value had been £280,000 and you bought a 50% share for £140,000, you'd pay SDLT on £140,000: 0% on £125,000 and 2% on £15,000, totalling £300.
If your lease includes a high annual rent, you must also factor in the net present value of that rent when calculating SDLT on your first purchase.
Staircasing up to 80%
When you buy additional shares that take your total ownership to 80% or less, you don't pay any SDLT and don't need to submit an SDLT return – regardless of how much each transaction costs.
Exceeding 80% ownership
Once your ownership share goes above 80%, you must submit a return and pay SDLT on:
- The transaction that took you over 80%
- Any further transactions
You calculate the SDLT based on the total amounts you've paid for the property so far, because these count as 'linked transactions'. Linked transactions are multiple purchases that are connected and must be considered together for SDLT purposes.
In some cases, this means you pay tax (or additional tax) on your first lease purchase retrospectively.
Example: You first buy a 25% share and later staircase to 75% – no SDLT is due on that staircasing transaction. But if you then increase your share from 75% to 85% in a single transaction, you must pay SDLT on the value of that transaction.
Worked example
On 1 March 2008, you spend £80,000 on a 50% share in a property with a total market value of £160,000. You later buy a further 25% share for £40,000, taking your share to 75%. On 5 December 2014, you buy the final 25%, including the freehold, for £40,000.
On the third transaction, the total consideration is £160,000 (£80,000 + £40,000 + £40,000). You pay 0% on £125,000 and 2% on £35,000 (which equals £700), apportioned 1:4 for the final transaction = £175.
You'll also need to pay £800 on the first lease premium retrospectively, because it's now linked with the later transactions. You submit an additional return to cover this.
Which option should you choose?
Your best option depends on your circumstances:
- Market value election suits you if the property's full market value is close to or below the SDLT threshold, or if you plan to staircase significantly in the future
- Staged payments may be better if the property value is well above the threshold and you're unsure whether you'll increase your share beyond 80%
You should submit your SDLT return within 14 days of completion and calculate which approach saves you the most tax overall.
Important notes
These rules apply to transactions from 4 December 2014 onwards. If you're buying property in Scotland (from 1 April 2015) or Wales (from 1 April 2018), different taxes apply – Land and Buildings Transaction Tax and Land Transaction Tax respectively – and you should check the rules for those territories.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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